Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The Euro sank to its weakest position against the US Dollar in 14 years on Thursday, with the US Dollar soaring across the board on the back of the Federal Reserve’s decision to hike interest rates for only the second time in a decade on Wednesday evening.

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lmost every major and emerging market currency sold-off heavily yesterday, with the market caught off guard by the Fed’s surprisingly hawkish message that suggested it was likely to hike rates more aggressive next year than it had anticipated in September. The Yen plunged by more than 1% for the day, while the Euro broke below its early 2015 lows and crashed below 1.04 to the US Dollar at one stage to its weakest position since 2003.

The US Dollar paid little attention to yesterday’s US inflation data, which came in slightly less than expected. Headline inflation rose by 1.7%, although the core measure fell short of expectations, remaining unchanged at 2.1% (Figure 1).

Figure 1: US Inflation Rate (2013 – 2016)

Yesterday’s Bank of England meeting also provided no help whatsoever for the Pound. The BoE left its policy unchanged, as was universally anticipated, although claimed that Sterling’s recent impressive performance meant inflation was likely to overshoot its target less than expected in November. It noted that the economic outlook had improved in the domestic and global market, with inflationary pressures easing since the previous meeting. We remain of the opinion that the central bank will wait for further evidence on the health of the UK economy before making any changes to its fairly neutral policy stance.

Meanwhile, in a busy day of central bank announcements, the Swiss National Bank and Norges Bank also both keep their monetary policy unchanged.

Eurozone inflation data will be the main economic announcement for the day.

Major currencies in detail

GBP

A hawkish Fed announcement combined with a relatively dovish message from the Bank of England yesterday sent Sterling 1% lower for the session for the second day in a row.

Retail sales data on Thursday came in right in line with expectations for November. Sales edged up by just 0.2% in the month and by 5.9% on a year previous, marginally down on the impressive data recorded in October. The slight increase was driven by an impressive performance in non-store retailing, possibly due to ‘Black Friday’.

Economic news is light on the ground today, with the Bank of England’s quarterly bulletin unlikely to garner any attention.

EUR

The single currency extended its losses to 2% for the week against the Dollar on Thursday, ending the session 0.8% lower.

The latest PMI figures released in the Eurozone yesterday were very mixed for December. The manufacturing index jumped to an impressive 54.9 from 53.7, well above the level of 50 that denotes expansion. According to the survey, businesses in the sector increase their prices at their fastest pace since mid-2011.

By contrast, the services PMI was very underwhelming, re-establishing a trend in the data that has seen growth in the sector slump to effectively nothing. The index fell to 53.1 from 53.8.

CPI numbers out this morning will be the main release of the day. Headline inflation is expected to remain unrevised at 0.6% in November.

USD

The US Dollar remained very well supported by Wednesday’s Fed announcement, rallying 0.8% against its major peers on Thursday.

Economic data released yesterday was fairly mixed after the slightly disappointing inflation print. Initial jobless claims continued to impress, remaining around its strongest position in four decades. Claims dipped to 254,000 last week from 258,000 a week previous. The National Association of Home Builders sentiment survey also rose more than expected. The index jumped to 70 from 63, its highest reading since July 2005.

US housing data are the only major release today in an otherwise quiet end to the week across the pond.